How To Do Good Work That Will Pay Off Your Student Loans

Alison Griswold
, ContributorI cover the broad umbrella of leadership, and everything under it.Opinions expressed by Forbes Contributors are their own.

Student loan debt in the United States tops $1 trillion.

If you’re interested in public service but burdened by thousands of dollars in student debt, don’t worry. You’re not the only one, and you needn’t necessarily seek a more lucrative career.

Programs at the federal, state and institutional level aim to make jobs in the public sector, nonprofit work and underserved areas more feasible for recent graduates. Though these positions rarely come with large paychecks, the loan forgiveness and loan repayment assistance they offer may be even more valuable as student debt in America soars over $1 trillion.

The broadest, most comprehensive path to loan forgiveness may also be one of the nation’s newest: the Public Service Loan Forgiveness Program (PSLF). Passed by Congress in 2007, the program promises to absolve remaining balances on the federal student loans of qualifying borrowers who make 120 monthly loan payments under eligible plans. To meet the program’s requirements, you must be working full-time for a public service employer —an organization in the public sector, 501(c)(3) or other nonprofit — while you make each of the 120 payments.

There’s currently little data available on the effectiveness of PSLF, since no one will have made those payments and become eligible for forgiveness until at least 2017. But it could potentially save tens of thousands for qualifying individuals, said Isaac Bowers, senior program manager for educational debt relief and outreach at Equal Justice Works, a Washington, D.C.-based nonprofit.

Take a law school graduate with $120,000 in federal loans ($125,000 was the average debt for private law school graduates in 2011) who becomes a public defender with a salary of $45,000 and 3 percent annual raises. If that person enrolled in the government’s Income-Based Repayment Plan, he or she would repay about $48,570 of the loans and be eligible for roughly $151,000 in forgiveness (accounting for accrued interest), Bowers said.

The federal government also offers two programs specifically for teachers: Stafford loan forgiveness and Perkins loan cancellation. The former grants up to $17,500 in forgiveness on Stafford loans to qualifying individuals who teach full-time in certain schools and education agencies that serve low-income communities for five consecutive academic years. The latter discharges up to 100 percent of federal Perkins loans for full-time teachers who hold specific positions in public or nonprofit school systems at the elementary or secondary level for one academic year.

Other programs funded through the federal government that have loan repayment incentives include AmeriCorps and the Peace Corps.

Mark Kantrowitz, who publishes the college planning and payment websites fastweb.com and finaid.org, says loan forgiveness options at the federal level are the most reliable. “Even if they get cancelled, existing borrowers are likely to get grandfathered in,” he said. “And they’re not in danger of being cancelled. There would be too much of an uproar if they were.”

At the state and local level, the options vary widely, as does the availability of funding in a tough economy. In Iowa, for example, students in the class of 2010 graduated with the third-highest statewide average debt level in the country, but tight finances have forced the state to decrease or not grow funding for its teacher and nursing loan forgiveness programs every year since 2008.

Kansas, on the other hand, recently gave new funding to loan repayment incentives. Just this January, people began moving to the state’s so-called Rural Opportunity Zones, which recruit new residents with promises of state income tax waivers for up to five years, student loan repayments of up to $15,000 (at $3,000 per year), or both. The city of Niagara Falls, N.Y. has also appropriated $200,000 for paying off student loans as part of a plan to grow its scant population. Under the program, recent graduates with two- or four-year degrees who rent an apartment or buy a home in designated areas will be able to apply for up to $7,000 in loan repayment over two years.

Finally, some colleges and universities offer their own loan repayment assistance programs (commonly termed LRAPs). These programs traditionally existed at law schools, but may be expanding to vaster reaches of higher education. In 2008 and with help from an alumnus donation, Tufts University introduced an across-the-board loan repayment assistance program for members of any Tufts school that LRAP administrator Judi Kennedy says is first of its kind.

Like Kantrowitz, Kennedy says federal programs are among the most reliable, and she adds university options to that mix. With no one site or organization that lists all the opportunities for loan forgiveness and repayment assistance, Kennedy says looking around is the most important step in picking a program.

“It’s doing research to see what things are out there to help you,” she said. “If you are working in the nonprofit or public sector, there are other programs to help you out.”